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No Expansion For CPP Reform – For Now

CPP expansion talks hit a major roadblock on Monday, when Federal Finance Minister Jim Flaherty refused to consider proposed changes. This comes as a major blow for Ontario and PEI, who may be forced to look for their own solutions for the looming retirement crisis. For the millions of Canadians not saving enough for retirement, the latest news from Meech Lake does little to calm their nerves.

Flaherty Prefers a Targeted Approach

Flaherty summed up his views on CPP expansion perfectly: “You don’t need a bazooka to go after a specific issue, you want to be more targeted, more precise.” His argument is simple: you don’t need a radical rethink of CPP for the entire Canadian population, when less than a quarter of the population are not saving enough for their golden years.

While he admits the middle class – those earning between $30,000 and $100,000 – are not saving enough for retirement, he thinks a complete overhaul of CPP isn’t the answer. “Now is not the time to take more from the pay cheques of Canadians,” stated Flaherty. “Families and the economy can simply not afford CPP payroll taxes that would take money out of the pockets of employees, and force employers to cut jobs, to cut hours and to cut wages.”

Are Pooled Registered Pension Plans the Answer?

So what exactly is a “targeted approach?” Flaherty favours Pooled Registered Pension Plans (PRPP), where workers contribute to a pooled fund as a way to encourage long-term savings and offer a lower-fee alternative to RRSPs. However, PRPPs have been met with a lukewarm reception. For starters, they wouldn’t be mandatory for employers – at a time when the economy is fragile, it could be a tough sell for small businesses struggling to stay afloat. Secondly, unlike RRSPs, your money would be locked-in until retirement; you wouldn’t be able to access the funds in financial emergency like job loss.

Also unlike an expanded CPP, PRPPs would be voluntary. Workers would have to opt-in to join the plan. Canadians aren’t the best when it comes to voluntary saving programs – only 24 per cent of Canadians contributed to their RRSP in 2011, down from 26 per cent in 2010. With less than a quarter of the population taking advantage of existing retirement savings vehicles, it’s hard to see how Canadians would suddenly have a change of heart and jump onboard the PRPP train.

Most Canadians Not in Favour of CPP Expansion

The finance ministers of Ontario and PEI may be gung-ho on CPP expansion, but Canadian workers don’t seem to share their optimism. Fewer than two in 10 Canadians (18 per cent) see CPP expansion as the best way to save for retirement, according to a new public opinion poll. Canadians much prefer alternative solutions, including tax cuts (54 per cent), incentives (47 per cent) and improved voluntary options to save (35 per cent). With the economy still recovering from the financial crisis in 2008, 45 per cent of Canadians feel an increase in CPP premiums would impact their ability to spend on the bare necessities like food, rent and mortgage payments, while 42 per cent feel they’d have less money to invest in alternative savings vehicles, including TFSAs and RRSPs.

Businesses share a similar opinion on an expanded CPP. Nearly a third of business owners feel that an increase in CPP premiums would force them to freeze or cut wages. This is definitely not one of the consequences Ontario and PEI had in mind. Small businesses, which are often credited with much of the job growth in Canada, are the most concerned, saying that CPP expansion would led to “grave consequences” to the Canadian economy.

The Onus is on Canadians to Save for Their Retirement

If these CPP reform talks have taught us anything, it’s that Canadians have to look out for themselves when it comes to their retirement savings. With savings vehicles like RRSPs and TFSAs already at your disposal, there are already plenty of great ways to save for retirement. We don’t want to end up like Spain or Greece, up to our ears in debt as a nation.

The sad reality is CPP reform is highly unlikely and years away – it’s important to take a proactive role in your retirement savings today. Sit down with your financial advisor and develop a financial plan to help make your retirement dreams a reality.